Legal Definitions - lapsed policy

A lapsed policy refers to an insurance contract that is no longer active or in force because the policyholder failed to pay the required premiums by the due date or within the grace period allowed by the insurer. When a policy lapses, the insurance coverage ceases, and the policyholder is no longer entitled to benefits or protection under that contract.

Here are some examples illustrating a lapsed policy:

• Auto Insurance: Sarah had an auto insurance policy for her car. Due to an oversight, she missed paying her monthly premium, and despite receiving a reminder notice, she failed to make the payment within the insurer's grace period. As a result, her auto insurance policy became lapsed. If she were to get into an accident after the policy lapsed, her insurance company would not cover the damages or liability because the coverage was no longer active.

• Life Insurance: John had a term life insurance policy to provide for his family. After several years, he changed banks and forgot to update his automatic premium payments. The insurance company attempted to collect the premium, but the payment failed. After the specified grace period passed without the premium being paid, John's life insurance policy lapsed. This means that if John were to pass away, his beneficiaries would not receive the death benefit because the policy was no longer in force at the time of his death.

• Homeowner's Insurance: A couple, Maria and David, faced unexpected financial hardship and were unable to pay their annual homeowner's insurance premium. Despite receiving several notices from their insurance provider, they could not make the payment before the deadline. Consequently, their homeowner's insurance policy lapsed. This left their home unprotected, meaning that if a fire or other covered event occurred after the lapse, the insurance company would not be obligated to pay for the damages.